The grain market reacted strongly on Monday, August 12, after the publication of the important Wasde report. In the US, all commodities closed the day sharply lower. Analysts are baffled by the figures that the US Department of Agriculture is coming up with.
Wheat and corn closed nearly $10 a ton lower in Chicago. For soy, the loss was slightly less at $4,50 per tonne. This commodity managed to make up some ground in night trading. In Paris, the Matif price for wheat fell by €3,25 and that of corn by €2,75.
Higher wheat production
The United States Department of Agriculture (USDA) is raising their yield expectations for wheat and corn. Soy production is declining. Due to a decrease in wheat consumption and processing, ending stocks are increasing, the USDA reports. It expects that the US will be able to export more wheat because the European Union, Kazakhstan and Russia will move fewer tons on the world market.
The reason for this reduction is an expected lower harvest. In their harvest estimate, it cuts 1,3 million tons from European wheat production. For Russia this is minus 1,2 million tons. For Ukraine it expects a higher production of 200.000 tons.
More corn in full market
The story for corn is similar with an increase of 26 million bushels (660.000 tons) over the July forecast. This brings the total corn harvest in the country to 13,9 billion bushels. A higher average yield accommodates the smaller area. The USDA writes about fewer exports as a result of a full world market in which Brazil, Argentina and Ukraine are the largest competitors. It also expects more corn from the European Union. The processing of corn into ethanol is declining in the country.
The total harvest of soybeans is estimated to be lower. This involves a reduction of 4,5 million bushels (122.000 tons). The reason for this is a smaller area, which decreases by almost 1,37 million hectares.
News hard to believe
Many stock market traders reacted with disbelief to the published figures. In particular, they expected a much smaller area of corn and soy. Due to the extreme weather this spring, millions of hectares could not be sown and arable farmers have left the seeder in the shed to be able to use their weather insurance. This happened for 4,53 million hectares. Many people also find it difficult to comprehend an average to good yield for corn and soy.
The USDA determines yield expectations based on 2 sources. On the one hand, it conducts research among farmers to hear their findings. On the other hand, satellite data of crop growth in the country is used.
Arguing about numbers
True or not, these are literally the hard figures that the market has to make do with. However, there are certainly holes in the report. For example, figures from the USDA itself and the Farm Service Agency (FSA) are used. The latter bases its area figures on information from farmers themselves. For corn, their estimated area is 34,75 million hectares, while the USDA itself writes about 36,42 million hectares. A big difference.
If the unsown 4,53 million hectares had been sown, under good weather conditions, this would have broken all records with disastrous consequences for the market. Arguing about the accuracy of these figures now dominates the market and will continue to do so in the coming period. That is the case until the harvest.